GOOG RIC through earnings

[Marco]

that time of the quarter again....

with GOOG implied earnings move being cheap (as usual) - currently at ~5% so below 10Q avg. of 7.1% and 4Q avg. of 5.3% I usually look at a tight RIC that needs ~2-3% move to make the max profit.

currently with stock at 755 that would be

740/750/760/770 RIC with mid at about 9.15 and the

735/745/765/775 RIC with mid at about 8.50

- both expiring this Friday (18th).

the first one needs ~2% move for max profit the 2nd one ~2.6% move. Lowest move in the last 10Q's was 2.4% so it has a high probability for the max profit but the loss if GOOG doesn't move will be large as well as you'll be trading the option on expiry day - so there wont be much time value left. Also spreads will be wide for that reason so in practice you'll need a move a bit bigger than above to close the RIC for say 9.90 (I wouldn't take the risk to let it expire unless we have a 10% move or so) for these reasons I would also look at the weekly that will be listed tomorrow - expiring next week and see how the numbers stack up there - that will give the stock a week longer to move (but also has the risk that the stock will revert to the mid) and in case GOOG doesn't move much you have a bit of time value left so loss will be closer to 50% rather than 70-80%

I'll be trying to enter the trade near the close to be as delta neutral as possible.

Chris, you have done this trade in the past so if you are around I'd like to hear your thoughts,

m.

[Kim]

Marco, I think this is an excellent analysis. I would probably go with the second trade - the first one just doesn't give you enough profit potential, considering the fact that you will probably not be able to get more than 9.85-9.90 even if the stock moves. Position sizing is the key as always - this is a high probability trade that should work 80% of the time, but when it doesn't, the loss can be large.

[Marco]

agreed, I do this with ~ 1/3-1/2 of my usual earnings trade allocation as losses can be much bigger if it goes wrong

[Rogers]

I think Chris normally runs the ATM RIC for around 9.50

Needs about a 1.3% move which has always happened. Higher probability/Lower profit

745/755/755/765 RIC

[Marco]

I think Chris normally runs the ATM RIC for around 9.50

Needs about a 1.3% move which has always happened. Higher probability/Lower profit

745/755/755/765 RIC

aka "a butterfly" ? best case is you close this for 9.90 (as I don't want to go through expiry, and the MM's nick 5-10 cents) so for 9.50 (maybe even 9.60 with slippage to get in) not worth it for me really. As Kim I even lean towards the 2nd version for ~8.50 rather than making it tighter.

[Stephen]

Thanks for the trade Marco!

[Marco]

well whatever combination they all WOULD have worked .... shame they pre announced. Was out of the regular earnings play as well ....